That was week ending 10th August 2012

Lessons from the Olympics 2 – the ethical dimension.

The second week of the Olympics saw more British success. We had a slight moment of panic midweek when we went almost 24 hours without a medal, but the winning conveyor belt restarted and more gold, silver and bronze went to British athletes.

The other success that continued was the almost universal praise for staff at the Olympics venues, especially for the volunteers, armed forces and police. “So friendly, helpful, smiling, brilliant” were just a few of the almost embarrassingly un-British like adjectives that visitors and spectators used to describe their experience of the welcome and service they received. This got me thinking about “employee engagement”.

Personally I don’t like the term but it won’t be long before the HR/training/consultancy world spots the potential for promoting the connection between the Olympics and employee motivation and engagement. However the volunteers were not “employees”, at least they were not getting paid and the armed services and police were only there because they had been sent there. So there had to be something more than just “engagement” to generate such brilliant attitudes and commitment. The Olympics is an inspiring undertaking and therefore a significant motivator for anyone involved to do their best to deliver. But there is a further factor that makes all the difference.

In 2002 Tomas Gonzalez and Manuel Guillen published a research paper on the “Leadership Ethical Dimension” in relation to the implementation of Total Quality Management (TQM). From their research they argued that whilst TQM can be presented and perceived as a “good thing” this is insufficient to maintain the engagement of people without this “ethical dimension” being demonstrated by the leaders of the enterprise.

Gonzalez and Guillen described this as “the right decisions and actions combined with good intentions accompanied by moral correctness of behaviours”. They went on to state that “when doubts arise referring to the honesty or the goodness of the leader’s behaviour, the moral trust, based on the ethical dimension, is shattered”.

Overall in my view the leadership of LOCOG got this pretty much right. In particular I think Lord Coe has played a blinder in this respect. He has been consistent in his approach that this is about delivering a great Olympic Games for London, Britain and for all the people involved. He has been visible in all the venues not just watching the events but walking about talking to staff and volunteers, thanking them for their efforts and reinforcing the message they were all engaged in something that was really worth doing. This achievement and maintenance of “moral trust” is all the more remarkable given the less than” moral correctness of behaviours” that pervades in the IOC itself and some of its associated organisations.

“Ethics” is a big issue for business right now which the business world is slowly waking up to and realising is going to be major factor in their ability to successfully sustain their businesses into the future. Gonzalez’ and Guillen’s research shows that it starts and ends with the leaders. It also shows why the bonus culture, whereby a few received rewards out of all proportion to results achieved is now unsustainable. It just cannot be perceived and justified as “good intentions accompanied by moral correctness of behaviours”.

So the next time you want to “engage” your employees think hard about what they think about what you want them to engage in and why.

Now you see it, now you don’t.

On Friday evening my wife and I went for a curry with my brother and sister-in-law. We had a very good meal and an enjoyable evening which was made even better by a magician called Magic Amit. He performed some very clever conjuring tricks at our table and in spite of four pairs of eyes watching his every move we could not spot how he did them. The quickness of the hand really did deceive the eye.

It reminded me of the story about Knight Capital a US market maker which lost $400m in a few days caused by a computer error. This loss was three times Knight’s profit for the whole of last year. Although the firm has been rescued by several other Wall Street firms it will, for all intent and purposes cease to exist. This has raised concerns that America’s financial markets have become too dependant on computers for trading with too much emphasis on the speed at which trades are executed.

So why do these market makers want their trades to be executed faster and faster? Could it be that the faster they go the more the rest of us, including regulators find it impossible to see what is really going on? We think it is time this was all slowed down, giving time for good judgement and honest dealing to be applied rather than leaving it all to computers. A couple of years ago Tony Ericson, one of my business partners wrote an article on this. Tony is an engineer and he pointed out that as an engineering “system” goes faster, unless some damping is introduced it will ultimately shake itself to pieces. This is what happened to the financial markets in the credit crunch and on a smaller scale what happened to Knight Capital. Tony’s simple solution was to ban anyone selling any asset they do not own. Because this would be difficult to define and police he came up with the even simpler solution that there should be a 24 hour delay from time of purchase of any asset before you could resell it.

Probably too simple for all the clever people in the financial sector but this simple “damping” would very likely have saved Knight Capital. I am sure that Magic Amit’s secret to his conjuring tricks is also “simple” so maybe we should try simple for a change.

Prudential KISS

Talking of simple last week saw some impressive figures from Prudential. Since 2007 when the credit crunch hit the Pru’s was worth £17bn and it is now £20,5bn. In contrast Aviva’s worth has halved over the same period.

But it could have been very different. A few years ago the Pru’s Chief Exec Tidjane Thiam proposed a $35bn bid for AIA along with a rights issue of $21bn to pay for it. Whilst the bid was a bold, game changing and audacious idea Thiam failed to take his shareholders with him and the deal collapsed with costs of £450m. It cost the Pru’s Chairman his job and very nearly did the same for Thiam. However he was given another chance and appears to have learned from it. Under his leadership the Pru has stuck to what it does well and now does it even better, including rapidly growing its business in Asia, which was what the AIA deal was all about. So “keep it simple stupid” or KISS has once again proved its worth.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 3rd August 2012

A lesson from the Olympics

The Olympics just cannot be ignored this week; the greatest show on earth really is the greatest show on earth. The challenge is what to write that hasn’t been or will be written.

The event from last week that got me thinking was the expulsion of the Chinese, Indonesian and South Korean badminton players for trying to lose in an attempt to manipulate the draw for the knock out stage. The Chinese and South Koreans were actually playing each other. When both teams are trying to lose just who actually did win is an interesting question.

Also last week we learnt of further eye watering provisions from RBS and HSBC for mis-selling PPI and interest rate swaps. This is on top of the fine for HSBC for money laundering. Barclays and Lloyds have already increased their provisions and many experts predict that even these will prove to be insufficient. The Libor scandal has further to run as well.

So what do banks and expelled badminton players have in common?

I suggest it is about winning. Not what you win but HOW you win.  Regrettably the culture within the banking sector transformed over time into one where it became all about the banks winning and it did not matter how that was achieved. The bonus culture reinforced this by enabling a small number of people to win disproportionately to nearly everyone else.

Winning in sport is on the face of it a clearer proposition. Most of us accept that top sports people must really want to win and this means they must beat their competitors, who by definition, lose. However what we also expect is that there will actually be a real contest, because sport, especially at top level, is massively devalued without it.

This is where the badminton players crossed the line. They abused the core value of sporting competition to enhance their own chances of winning. The spectators spotted this and quickly expressed their disapproval, soon followed by the umpire and then the Olympic authorities.

However there are no actual rules in badminton that expressly prohibit players from trying to lose. What the Olympic authorities enforced was the “spirit” of competition which is about HOW you win. I fear that just introducing more rules and regulations on our banking sector is not going to be the answer to restoring the “spirit” of fair dealing and sound business practice that we really need.

Sharp shooting

Congratulations to Peter Wilson, our gold medallist in the shooting double trap. However at one point it looked doubtful that he could even continue with his sport, never mind actually compete in the Olympics.

Following the lack of shooting medals in 2008 Games his funding from Sport England was withdrawn. With some real “out of the box” thinking Wilson approached Ahmad Mohammed Hasher Al Maktoum, a member of the ruling family of Dubai and the 2004 Olympics gold medallist in the double trap. He did not ask for nor did he receive financial support from Maktoum but he did persuade him to become his coach. With his coaching secured Wilson then managed to raise enough funding himself to get into the British team for the Olympics and then to become the first British shooting medal winner since the 2000 Games.
This was an outstanding example of “where there’s a will there’s a way”. Get really clear about what you want to achieve and that you really want it and then tackle the problems and challenges that must be overcome to make it happen. In particular be ready to think differently about what the solution might be. It would have been so easy for Peter Wilson to see his Sport England funding as the only route to a place in the Olympics and to give up when this was no longer available. There is always a way, we just have to find it.

Falling off.

Congratulations also to our men’s gymnastic team for winning a bronze medal, our first medal in this event for 100 years. At one point they were awarded silver before a protest from the Japanese team secured an extra 0.5 points for the pommel horse gymnast, which gave them the silver.
Now here is a bit of rant from me about this. I watched this part of the contest and whilst I am no expert that Japanese bloke “fell off” the pommel horse at the end of his routine, he did not “dismount”. The fact that his falling off coincided with his dismount does not change my view on this. The Japanese maintained he should be awarded some points for his dismount as he had landed on his feet. Well you would expect a top athlete to land on their feet in most situations. I have seen jockeys “dismounting” at Beechers Brook in the Grand National in a similar fashion to this Japanese gymnast.
A case of applying the letter of the rules rather than the spirit in my view. However given the avalanche of medals that British athletes have collected so far, I guess I don’t have that much to complain about.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

Thatt was week ending 27th July 2012

The good news is that there will be good news

As the Olympics approached an irresistible tide of optimism began to take hold on the British media. Sports pages were filled with rank upon rank of British athletes with the potential to win medals. If they all fulfil the media’s expectations then no other nation is going to get a look in!

Optimism prevails in spite of poor GDP figures which showed that we remain “mired” in a double dip recession, with the economy shrinking by a whole 0.7pc in June. Given how wet it was the economy wasn’t the only thing to shrink in June. For example I am certain the Queen is smaller now that before the jubilee celebrations. However in economic terms it means a boom in umbrella sales does not make up for no one being in the mood to buy summer frocks.

Such is the mood of optimism however that most people including the ONS think that things are better than these figures show and anecdotal evidence from our own clients and contacts supports this view. There is so much good news about that the Daily Telegraph is actually launching an initiative to focus on the positive news from the business world under the slogan Good News Britain.  Here are just a few of those good news stories from last week.

Manufacturing – what us!

A few weeks ago BMW announced new investment for Mini production and its engine plant at Hams Hall.  Last week Jaguar Landrover announced investment in new Jaguar models that will create over 1,100 jobs at its Castle Bromwich plant.  Hitachi will build a new train factory in the Northeast creating 730 jobs. At this rate we may have to grudgingly admit that we do still make things in Britain.

Making money.

Rolls Royce (our leading high value manufacturer) drove sales and profits up by 7pc in its first half. They are expanding capacity with a new turbine casting plant in Rotherham. BSKYB announced profits up 17pc and that it would be returning £500m to shareholders. Unilever shares went to an all time high when it beat City expectations on sales and profit increases.

Long term at long last

Apart from being good news one other characteristic of these success stories is that they are all the result of long-term vision, strategy, planning and execution. It is interesting that they should all come out in the week that the economist Professor John Kay published his report on short-termism in UK equity markets.

One of his recommendations is to put an end to mandatory quarterly reporting. In 2010 Unilever stopped reporting full financial results quarterly, only reporting on sales performance. In spite of protests from people in the City who get paid to comment on quarterly results this move has clearly done no harm to Unilever itself. This may be something to do with management having more time to concentrate on managing the business rather than managing the city.

A key proposal in Prof Kay’s report is that bonuses should only be paid in shares and that executives should be prevented from cashing in their holdings until at least they have retired from the business. Given that currently the average tenure of a FTSE100 CEO is 5 years the experts in what cannot be done will be all over this one.

However John Rose, who retired as Chief Exec of Rolls Royce last year, spent 27 years with the company and 15 years as its Chief Executive. Last week I highlighted the career of Sir Ian Wood who has retired as Chairman of Wood Group after 48 years with the company, building it into a global leader. These two business leaders did very well for themselves but also built a sustainable legacy into the business for others to take forward. Prof Kay’s proposals on bonuses would ensure that we have more leaders like John Rose and Ian Wood running British business.

Back to unreality

In spite of all this good cheer the end game for the Eurozone appeared to gather pace with inspectors from the EU arriving in Athens to see how the Greeks are getting on with their austerity programme. Markets around the world sagged as they know what the answer to this question is but would rather not hear it. Then on Thursday Mario Draghi the ECB President said he “would do whatever it takes” to save the Euro, adding “believe me it will be enough”. The inference appeared to be that if you did not believe him then he would see you out in the car park with your jacket off. The markets decided they would rather believe him and bounced back in response.

Well you can’t get much more short-term than that!

I know central bankers are supposed to be able to move markets with their utterances but this latest episode has taken unreality into new territory in my view. It is fortunate that we have companies like Rolls, Unilever and the Wood Group. Their long term vision and leadership will take them through whatever happens in the Eurozone and they will still be around long after Super Mario is forgotten.

Regional No Growth Fund

A couple of weeks back I wrote about a client that had been turned down for a grant for the Regional Growth Fund on the grounds that they were too good a risk. The Institute of Chartered Accountants (ICAEW) last week produced an assessment of this scheme, describing it as being undermined by a catalogue of errors, lost documents, bureaucracy and misunderstandings. ICAEW cites a lack of understanding amongst officials at BIS which is a cost to taxpayers and to growth. In other words they don’t know what they are doing. It is not much compensation for our client to discover that the most likely reason their grant application was refused was due to incompetence at BIS.

More reasons to be cheerful

But the good news does not go away as, apart from one miserable old git of a Tory MP, Danny Boyle’s Olympic opening ceremony was judged to be a triumph by most that watched it. You might quibble with some of the content (but why would you want to?) but the execution was flawless. Furthermore visitors to Olympics and competitors are using words like “so well organised” and “everyone is so helpful and friendly”. If we are not careful we will have to admit that we can now run big successful public events AND make things in Britain.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 20th July 2012

G4 what?

The G4S story was all over the headlines at the beginning of the week, but had faded out almost completely by the weekend. The media had moved on to looking for other potential Olympic disaster stories. Watch out for reports of missing toilets rolls and any other minor shortcomings which the British press will project as a national disgrace that we are somehow all to blame for.

However a question occurred to me about the G4S debacle which I thought worth exploring. That question is did G4S think it was contracted to provide security guards for the Olympics or did it think it was contracted to provide security?

It is still not clear exactly why G4S failed so badly. However there are two factors that appear significant. First following a review of the security requirements by the government they significantly increased the number of security personnel they required from G4S. This was the security requirements driving the numbers of guards to be recruited. Thereafter the recruitment process became entangled in the training process which could not train recruits in sufficient numbers.

Now you may think this does not matter because, at the end of the day G4S failed to recruit enough security staff which means they would not deliver on the security requirements either. However I think it is significant because it could have affected the way G4S approached delivering the contract. If the primary driver of its process was the recruitment of security guards then they would be less likely to anticipate the potential for the need to increase numbers nor the implications of the training that would be required.

I have seen many instances of failure to deliver caused by a supplier not fully understanding what it is the customer really wants as opposed to what it seems they have requested. I would not be surprised if this turns out to be the route cause of G4S failure on their Olympics contract.

Eurozone – the beginning of the end?

A few weeks back I wrote about how none of us could predict what was going to happen in the Eurozone but that the signs were that something was going to happen and it might happen soon. Curiously since then not a lot has happened and there has been very little coverage in the media, until towards the end of last week.

Last week Eurozone finance ministers unanimously approved €100bn bailout for Spain’s banks. In spite of this Madrid’s 10 year bond yield jumped back above 7pc and yields on short term debt are now a fifth higher than 6 weeks ago. The Spanish government introduced austerity measures that are much tougher than the Spanish Prime Minister claimed would be required when the loan agreement was announced. This pattern follows that of Greece, Ireland and Portugal so brings Spain close to the point of needing a full scale sovereign bailout. The Eurozone could rescue Spain but the next in line Italy, is just too big. Last week 10 year yields on Italian bonds climbed sharply, peaking at above 6pc and Sicily became the first Italian region to appeal for government help to prop up its finances.

The Eurozone is fast running out of workable and politically feasible options for saving the Euro. “Fiscal union”, which is the only option really likely to work, is simply not going to happen whatever the IMF says, so that leaves the breakup of the Euro as the increasingly likely outcome. By simultaneously sending their governments on holiday they have ensured that nothing can be decided and therefore nothing can happen (they hope) until the autumn. However we are probably about 3 months away from the “beginning of the end” for the Euro.

Some of the way with UKBA

The proposed strike during the Olympics by UK Border Agency staff has been condemned almost unanimously as everything from unpatriotic to opportunistic. Despite only 10% of staff voting for action the PCS union is to press ahead with the walkout.

Whilst I share the general disapproval I do have some sympathy with the front line staff involved. The standard of leadership in UKBA is so bad that if I had to work there I would be sufficiently hacked off by now to want to take it out on someone. It is not only rubbish in UKBA itself but it is compounded at the political level by Theresa May the home secretary who continues to flounder. The coalition only seems ready to accept removing a minister from their job if they have been involved in something underhand. Incompetence and failure it seems is not a reason to move a minister to where they can do less damage.

Solid Wood

On a more cheerful note and talking of leadership, best wishes to Sir Ian Wood who has retired as Chairman of Wood Group after 48 years with the company. During this time he has guided the company to become a global energy services group employing over 41,000 people in 50 countries. A great example of growing a successful business through engineering, rather than financial engineering.

With Sir Ian stepping down there is some speculation that the company could now become a bid target. No one could blame Sir Ian and the Wood family who still own s substantial share of the business from thinking about realising at least some of the value of this shareholding. However I hope that if the company is sold that the new owners will recognise the skills and culture of the people in the business that have been crucial to its success and build on this. It would be a great shame if the value created by Sir Ian and his team were be squandered as a consequence of a change of ownership.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 13th July 2012

The elephant in the report

Last week the Office for Budget Responsibility’s (OBR) published its Fiscal Sustainability Report, its annual assessment of the UK’s overall financial health. The OBR reports that measures to cut the deficit together with others such as reforming public sector pensions have improved Britain’s long-term economic prospects. This will help maintain market confidence in the UK and keep government borrowing costs down.

So this year’s report is actually more encouraging than last year’s but only in the sense of comparing “we’re all doomed” to “we should all be very worried”. What the OBR thinks we should worry about next is the challenge of supporting the ageing population through healthcare and the state pension. They estimate that by 2061/2062 changing demographics will add £65bn to the budget deficit in today’s money, unwinding half the current round of austerity. This says the OBR will require further spending cuts and increases in taxation to stop public debt spiralling to nearly 90%.

Now 50 years is a long time. Perhaps advances in technology and productivity across the economy will offset some of the financial consequences of this demographic time bomb. However the OBR warned that unless productivity in the NHS picks up then government will have to make a further £68bn of cuts elsewhere.

The coalition promised to protect spending on the NHS. However at the same time the service is attempting to save £20bn by 2015 to ensure there are sufficient funds to cope with the rising demands of an ageing population. Hospitals have cut their headcount with the consequence that the number of shifts filled by temporary workers rose by more than half in a year. For a general nurse this comes at a price of up to £1,400 per shift compared to about £212 per shift for a nurse on the NHS payroll.

When you impose cost cutting on an unproductive organisation, it just gets more costly and unproductive. By contrast Toyota continuously improves productivity in order to achieve the means and opportunity to reduce costs. Of course sometimes you just have to cut costs, but unless your productivity improves the benefits are short lived and you have to cut again.

The stark but unspoken conclusion lurking in the OBR’s report is that, unless productivity in government and public services improve significantly we face decades of spending cuts and tax increases just to stand still. There is little sign that this government or any of our politicians actually understand what “improving productivity” actually means and why it is different to “cost cutting”.

The “do nothing” growth plan

The signs that anything is about to change are not encouraging. Last November the government announced a plan to boost the economy with investment in infrastructure with 500 potential projects worth about £250bn.  40 projects were identified as priority but 8 months on not a single project has been started. In the meantime it is reported that one in four public sector organisations will cancel construction projects over the next 4 months.

Last week we had the launch of the “funding for lending” scheme and announcements of major investments in rail including Midland Mainline electrification. We in the East Midlands have been pushing for this for what feels like most of our lives. However we also know that there is only one technical team left in the country with the expertise to handle this and that capacity is already fully committed.

Improving government productivity means not just announcing projects and schemes to boost economic growth but actually making them happen and delivering results. As I said the signs are not encouraging.

Surprise, surprise!

Bob Diamond told us he did not know that some of his Barclays Capital traders and been fixing the Libor rate. However last week we also learned that when Russia defaulted in 1998 BarCap traders were found to have breached the country limits imposed by the bank. This was never made public at the time but guess who the boss was at BarCap and did not know what had been going on? Yes, Bob Diamond no less. What was that Oscar Wilde line, something like “once is unfortunate, twice sounds like carelessness”!

We seem to be getting a steady flow of Chief Execs who don’t know what is going on in their businesses. The latest is Nick Buckles of G4S who only found out “8 or 9 days ago” that they were way short of the number of guards they needed to recruit for the Olympics. Now I have never run a FTSE business but if I had and the business had won a contract to supply security guarding for the Olympics I think the following equation would have occurred to me, “high profile + high risk = potential catastrophe”. You really wonder what these big company Chief Execs do all day!


So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 6th July 2012

Too big to ...?

There is a perverse streak in me that means when everyone is talking or writing about a particular story I feel compelled to write about something else. This makes it difficult for me this week because last week the Barclay's story dominated the airwaves and column inches to the exclusion of almost anything else.

However it reminded me of the “too big to fail” problem we have with all our banks. The government has said it will introduce reforms so that in future a failing bank can be wound up without the need for taxpayer support. Not much sign so far of anything actually being done about this.

This made me to think more about the “too big” thing and about organisations that become “too big to work”.  There is emerging evidence of disconnects between different levels of management in Barclays creating a situation where the manipulation of Libor by traders was perceived by them as the thing to do. Those disconnects are a symptom of an organisation that has become “too big to work”.

By definition becoming big means a business has grown and growth we are told is a “good thing”. However you can have too much of a good thing. Growth that is the outcome of sound values and continuously building organisational competence and capability is sustainable and delivers value. Growth that is achieved through temporary market advantage, merger, acquisition, financial engineering etc., but without sound values and which outstrips growth in organisational competence and capability usually ends in tears. You may think you need to be big “in order to compete in a global market”, but if you are just not good enough then just being big doesn’t do it. Which brings me to …

Aviva

Apart from spending zillions rebranding with a name that means absolutely nothing at all, Aviva is a classic example of becoming too big to work. Ask any independent financial advisor and they will tell you they are complete nightmare to try to work with. A sure sign of a business that has become “too big to work” is when, like Aviva they come up with one new strategy after another. Each time they convince themselves that this next one is going to work. These strategies always have fancy strap lines like “one Aviva, twice the value”. Under former Aviva CE Andrew Moss this became “one Aviva half the value”, as the share price fell by 60pc.

New Chairman John Macfarlane pronounced last week that the business was a mess and he was going to clear up the mess (though he didn’t use the M-word). Central to his strategy is making the business smaller by selling or winding down 16 of its 58 businesses. However demonstrating that Aviva has not lost its preference for fanciful sound bites the man leading the restructuring, David McMillan, will become “director of group transformation”. In my experience anyone accepting such a title is either very brave or very foolish, possibly both. But, we shall see.

Whose side are they on?

I end this week with a story from one of our clients, a £5m t/o construction services business. In spite of being in a very tough market they have continued to grow and create jobs. However they have to carefully manage their cashflow to support their working capital requirements. Their bank has been supportive but not generous in this respect.

So when the opportunity came to receive a grant from the Regional Growth Fund to help them fund the deposit for some capital investment they were considering they decided to apply. A grant would make it possible for them to make the investment earlier than would otherwise be prudent and create a few more jobs in the process.

In spite of being informed they were exactly the type of company this was designed for our client’s grant application has been refused. The reason given is that the underwriters have calculated that our client can service the borrowing at the funding level required and does not need the 10% deposit support. In other words because the bank felt they could make the repayments there was no grant available.
If they had demonstrated an inability to service the debt payments then they would have qualified for the grant. This means that you have to be a bad risk before you qualify for support. Our client now has to reapply for higher funding up to a level (which they don’t need) at which the risk calculation confirms they can’t service the debt without the 10% funding.
This is just nuts and shows how the people administering these schemes have no idea at all how businesses, especially small businesses, perceive and manage their risks. Lack of confidence is cited as the reason why so many businesses are not investing. A scheme like this can help business mitigate risk and therefore encourage them to invest sooner rather than later. In my client’s case it would have meant that they reduced the risk of having to dip into their cashflow which they need to service their working capital requirements.
Mr Cable this is a serious disincentive for businesses like our clients to apply for so called assistance like the RGF. At this rate the management time they will spend on this is likely to outstrip the value of any grant. No wonder small businesses wonder just whose side the bizarrely named Department of Business, Innovation & Skills is actually on!

That was week ending 29th June 2012

After the Diamond Jubilee comes the Diamond Dilemma.

I am indebted to Bill Good for inspiring the above subheading.  Bill is a long standing business friend and when I bumped into him at a CBI event we both agreed that the Barclay’s Libor manipulation scandal had to go into “the Week before this Week” this week; even if everyone else is writing and commenting on it.

Those of you who read last week’s article will remember I put forward the concept of “doing the right thing really well” as the only way for businesses to build the “trust” with all stakeholders that is essential for long term success and sustainability.  Well the Barclay’s story is a spectacular example of “doing the wrong thing”.  Not wrong as opposed to incorrect (which it was and probably illegal) but wrong as opposed to morally right. When I wrote last week’s article I had no idea this story would break this week. It really has been my fastest “I told you so” experience and contains some essential lessons for all business people.

Not only did Barclays “do the wrong thing” they did it very well apparently, at least from Barclay’s point of view. However it has all come crashing down around them and the consequences for the business with people queuing up to sue them could be serious and even fatal ultimately. It will certainly trigger more regulation and supervision for the banks which is not really in ours or the banks’ best interest in the long run. However such is the state of society’s mistrust of banks that it will be politically unavoidable.

The big question by the weekend was can Bob Diamond survive as Barclay’s CEO or should he survive? Apart from the Libor scandal itself, there is the little matter of the share price falling 42pc over the last 3 months! Plenty of others have covered the arguments on should he go or should he stay, but for me there is one factor that is crucial and that is “trust”. Diamond appears to have great difficulty seeing himself as others see him and seems to have failed to understand that few of us are now prepared to believe a word he says. Now this may be unfair but unless he can put this right he will remain too much part of the problem to be able to fix it and take Barclay’s forward. Personally I don’t see how he can put this right and he has to go

And lo, just when they thought things couldn’t get worse – they did!

On Friday the FSA announced it had uncovered “serious failings” in the way Britain’s four biggest lenders sold interest rate hedging derivatives to small businesses. Up until the Libor scandal emerged I thought this was going to be the all time prime example of what happens when a business “does the wrong thing”. Even so this “mis-selling” (or fraud if you or I had done it) could cost the banks up to £6bn or more in compensation.

Is anyone not getting the lesson on why “doing the right thing” is and always has been the way to go?

Xstrata-ordinary!

Just in case you haven’t (Mr. Diamond!) lets look at the latest developments in the Glencore, Xstrata merger story. All along this has looked like a good idea for the directors and employee shareholders but maybe not so good if you are just a shareholder.  As part of the deal Xstrata’s CE Mick Davis was due to receive a £29m retention package, i.e. just for staying on.  After criticism performance criteria were introduced so the retention awards will only fully vest if a further $300m of incremental savings are achieved from the merger within 2 years.

This does mean that Mr. Davis now has to do something rather than nothing for his £29m. However I am not at all sure that a narrow focus on short term cost savings linked to personal self-interest will turn out to be in the long-term interest of the business and its shareholders. It appears that one “wrong thing” can lead to another.

Furthermore the retention package sparked questions on the terms of the merger itself and last week Qatari Holdings announced it wanted more Glencore shares for those it holds in Xstrata. Consequently there is now a considerable risk that the merger could fail. If it does then it may be that the trigger for this could be down to “doing the wrong thing”, i.e. offering the CE £29m just to stay on.

Happy Feet

Encouraging news last week from British manufacturing. In this year’s HSBC Business Thinking competition the winner and three of the five runners up were businesses who manufacture their products predominantly or exclusively in the UK.

Even more encouraging was a feature in the Telegraph on Hotter Shoes. Founded in 1959 Hotter has always manufactured the majority of its shoes in its Skelmersdale factory near Liverpool. I first came across this company about 7 years ago and confess to being astonished that it was still possible to be a volume shoe manufacturer in the UK (£57M p.a.) and make profits (consistently in the high teens percentage).

There is a lot of talk now about a resurgence in UK manufacturing and of “repatriation” of manufacturing from overseas. Well Hotter never went away. How did they do it? In 1980 they were in as much trouble as many other shoe manufacturers as the industry collapsed. Hotter decided to pull out of supplying multiple retailers, widen its range of shoe products and sell through independent retailers and direct to the public through its own retail stores, mail order and of course now online. In other words they completely changed their business model and it worked.

There is a lot of evidence of “doing the right thing really well” at Hotter. For example their call centre is in the factory where the shoes are made. Staff don't have call scripts because they know that every conversation with each customer is unique. They're really well trained and have great product knowledge - they can give customers the advice they need to make sure Hotter delivers its promise of "Happy Feet".
If it can enable a UK based shoe manufacturer to become highly successful then "doing the right thing really well" can achieve just about anything.


So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.